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Insurance companies and bond portfolio managers have a lot in common in respect of their financial risk profiles: fixed payments in exchange for an uncertain probability of loss of principal. Insurers call this loss a claim, while cross-default provisions in loan agreements make losses apocalyptic.

These legal differences reflect an underlying cultural difference: insurers are ostensibly there to pay losses, whereas bond managers are there to never lose anything.

At work, I spend a lot of time trying to blur the line between the two. My day is made when I can track down risk-seeking asset managers to take on insurance risk. Typical asset managers hear “loss” and want to scream; they dispute, they drag their heels, they litigate.

What they DON’T understand is the reinsurance culture of paying losses and earning ‘payback’ from higher premiums on subsequent renewals. It works if done right.

And there’s an excellent market for them as the reinsurers of reinsurers: the end of the food chain.

The culture of insurance tolerates loss, but is still risk averse. The point of insurance is to pay for the next claim, the one that can’t be predicted: the rule is that if you could predict it, you should act to prevent it. Breaking that rule defines MORAL HAZARD. Comes up a lot.

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